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This paper addresses the innovation dynamics induced by environmental policy in the pulp and paper industry. There has been a fair amount on technical change in the pulp and paper industry in the recent past and there are still plenty of options for improve- ment. Innovation and diffusion of new technologies have occurred with respect to end- of-pipe abatement, on processes and the product (paper) itself. The main drivers for in- novation in the pulp and paper industry are competition and market demands, but envi- ronmental policies have also played a role. With respect to the types of policy instrument most conducive to innovation,. | From natural resources to high-tech production the evolution of industrial competitiveness in Sweden and Finland Magnus Blomstrom and Ari Kokko Stockholm School of Economics PO Box 6501 Se-113 83 Stockholm Sweden January 2002 1. INTRODUCTION Sweden and Finland are among the world s richest and most highly developed economies today but it is often forgotten that the Nordic region was still one of Europe s poorest and most backward corners around the middle of the 19th century. The remarkable transformation that commenced around 1850 in Sweden and some decades later in Finland has gradually changed both countries from underdeveloped agricultural economies to advanced industrial welfare states. This process is interesting not only from an historical perspective but also from the point of view of today s developing economies. One of the distinguishing features of the Nordic development history is that growth was fuelled by the expansion of industries based on domestic raw materials such as timber and iron ore. From a position as suppliers of simple intermediate products to more advanced economies in Western Europe Sweden and Finland were able to upgrade the technological level of their raw material based industries and establish a foundation for a more diversified economic structure. Over time both countries managed to successfully diversify into related activities such as machinery engineering products transport equipment and various types of services. Many of today s developing economies have abundant supplies of natural resources but few countries seem to base their long term development strategies on resource intensive sectors. The reason is arguably the risk that they may never be able to move from production and exports of low value added commodities to more advanced industries. However the Swedish and Finnish experiences suggest that development strategies based on raw materials may form a solid base for sustainable development and demonstrate some of the .
